News

13th March 2017

CASE STUDY From field to shelf, Sono Global’s acquisition of the Cajuba juice production facility in Bahia, Brazil strengthens the company’s fully integrated chain business model

Sono Global recently acquired the Cajuba juice production facility at Nova Soure in Bahia, Brazil with a view to complementing and increasing its product range. The plant has the capacity to produce both FCOJ and Tropical juices (including passion fruit, mango and acerola, amongst others). Following a downturn in the plant’s fortunes due to funding problems and lack of access to the key markets, Sono Global stepped in and acquired the company back in July 2016. This was part of their strategy of adding another key link in the integrated supply chain that Sono Global are pioneering in the fruit juice industry through the introduction of a business model that has been so successful in other commodities such as oil.

Fruit Juice Focus talks with three of the principles of Sono Global: Frank Runge, Darren Jenkins (CEO) and Richard Malpass.

Fruit Juice Focus (FJF): Could you give a brief background to Sono Global

Sono Global (SG): Sono was formed in 2010 with the objective of becoming an integrated fruit juice production and distribution business, focusing on our first production plant in Ghana. From that initial business the group has developed to the point where we now have two production units, a distribution and packaging solutions business, Maia, and two trading arms, Steinhauser in the US and Sono Bv in Europe.

FJF: You purchased a production facility in Brazil in July last year. How did this come about?

SG: We are always looking for production assets in prime locations to expand the range of products that we can supply to our customers. We have been aware of the plant in Brazil for some time and its excellent access to a wide range of tropical and citrus fruits.  As the plant was part of a larger group which was in Administration the challenge was to find a way of acquiring the plant from the authorities. This was a very complex process and took far longer than we expected.

FJF: What were the reasons behind the failure of the Cajuba operation before the acquisition?

SG: The world of banking for a commodity our size has changed quite dramatically. In the recent past the agricultural banks were comfortable with financing this (Cajuba) type of business and the various seasonal fluctuations that went with them. But after the banking crisis the majority of these banks decided to restructure with the aim of looking to invest in commodities that were far greater than the citrus industry. So for Cajuba they were falling unfortunately into the bracket of being too small for one and then too big for the tier below and so the business ultimately failed. However it must be noted that this was not due to the orange juice side of the operation, as that is actually a fairly standardised and commoditised business, but it was on the tropicals side of the business that the funding became an issue. The tropical fruits are very expensive and you require an awful lot of financing to fund the cash flow requirements at peak times when they come into season. The Cajuba plant is an integrated plant where you need both critrus and tropical to work simultaneously. You can’t switch a plant like this on with just the tropicals and then not run the orange line and vice versa, you need both as a contributor to the fixed cost. They might not make the margins or the profit at the same time but you need to run them both simultaneously.

The other problem was that this was a very Brazilian inwardly looking organisation and they didn’t have access to the European and US export markets for tropical products leaving it stuck in a trap in terms of market.

FJF: Had the plant ceased operations when Sono took over? 

SG: It wasn’t quite ‘mothballed’ but it was in a state where it needed a fair bit of refurbishment to get it up and running again.

FJF:  How long had the plant been operating before you purchased it?

SG: The original plant had been producing juices and concentrates since the early 1970s including cashew, mango, passion fruit, acerola and guava.

FJF: Were you able to get any local government support or aid to help get the plant up and running?

SG: No. We’ve learned from having our first plant in Ghana (Africa) not to rely on government aid or grants. They may come later. People are very happy that we are here in Brazil and providing a welcome boost to the local economy but this has not translated into any offers of financial support or investment.

FJF: Are you able to say how much Sono invested in the purchase?

SG: This is confidential information although part of the information is available from the public records office in Brazil but this doesn’t give the complete picture.

FJF: How many people does the plant employ?

SG: The plan is to bring the workforce up to about 180 employees when we are fully up and running and bringing on different fruits at different times. At the moment we employ around 120 staff.

FJF: There has been much talk over the past decade of juice traders being squeezed on price by both the big producers and the big global supermarkets. Was this part of your reason to get into production?

SG: We have always been a producer of juice, which also trades a number of other products. Our plan is to sell more and more of our own production. This gives us control of the whole supply chain which for many of our customers is becoming a key issue.

FJF: This strategy of controlling the whole supply chain is an interesting one and quite new to the fruit juice industry. How have you developed this for Sono?

SG: We (Darren and Frank) and a lot of the other investors come historically from an oil background where integrated chains were created as early as the eighties and the nineties. In the business that we are finding ourselves here there are very few players who have an integrated chain. You have got the brands whether they are supermarkets or just big brands on the one side who don’t really look for an integrated chain. They just make sure they have got the right quality at the right price point at the right delivery point throughout the year. And then you’ve got the super-producers who again don’t really go down this integrated route either, and in-between you have the people who do the infrastructure – the shipping industry, the warehouse industry. But somebody who really goes from field to shelf is very very rare in this sector.

We are working to overlay and map out a process that works for another commodity such as oil into the fruit juice industry. So far so good. People are ultimately interested more and more in having security but not ownership or control over the food that they process. So if you are a brand that would like to have an integrated chain but are not in a position to do so for whatever reason, their business model may not allow it or for reasons of the size of their company they can’t develop the chain scenario. But they like the principle and security of whole integrated chain – and that’s where we at Sono come in. Our model aims to control the agricultural asset and deliver that security to the end user. They want to know where their crops are grown, they want to know who the farmer is and they want to know who the people are that are picking it and to know they are being paid properly and they are paying their taxes and they have healthcare and all those things but they don’t want to own the asset to give them that security.

FJF: Why did you choose to invest in the Brazilian industry?

SG: We invested in Brazil simply because of the access it provides us to high value tropical products, such as acerola and passion fruit.

FJF: Do Sono Global own plantations in addition to the production plant?

SG: We currently do not own plantations, however in the correct circumstances we would not rule this out. Our current model is to contract grow many of our crops. For instance in Ghana we are currently contract growing 15,000MT of MD2 pineapple which the Pinora plant will process.

FJF: What might the correct circumstances be?

SG: It is difficult to predict at this stage in our development. It is a huge outlay of capital. Owning land is not the expensive part as we have figured out. It is the irrigation and the plantation, so it becomes a different pot of money that would seek to invest in owning a plantation.

At present we give plantations the outlet. If you grow it we will be there with the plant and convert it into another commodity. We prefer a relationship with a farmer, who is near to us, where we have a certain dependency on each other. We do a longer term joint venture or growing deal with them as we are not the agronomist, they are. We see no added benefit in owning a piece of land and doing the agronomy ourselves because none of us are agronomists and that is not our focus.

FJF: What, if any, have been the main obstacles you have faced so far with the facility? And how were these overcome?

SG: We have not faced any unforeseen obstacles with the plant to-date. We had sufficient time to plan the process with our excellent management team on site and we are delighted the project has run very efficiently so far.

FJF: Have you kept the local management team in place or have you had to draft in your own people to get the plant up and running?

SG: From the 180 people that we will have in place when we are fully operational there would be most likely 90 of the original staff, and yes it’s on the management side that we have made changes to the workforce. You just can’t all of a sudden find a workforce locally that is qualified to transform the operation to the level and standards we require. So we brought over key personnel from the management team running our African plant where we spent a time and resource getting that up to speed and working perfectly. Now we are using this expertise in the Brazilian operation. We have a technical guru who has gone into Brazil and done all the work that was needed to get the plant up to the level that it is now so we can confidently produce all of the juice that the plant allows us to.

FJF: Were there any issues with quality certification standards and laboratory facilities?

SG: The plant had all of the normal certificates beforehand, BRC (British Retail Consortium) and so on and we are just going through the process now of reinstating everything because it is effectively a new plant. There are two great labs on site which have been refurbished and brought up-to-date so we are basically self-contained in that respect.

FJF: Are there any specific directions that you hope to take the Cajuba plant in?

SG: We are seeking to develop the Agro supply base around the Cajuba plant in the coming years, with a view to having around half of our fruit contract grown in the next five years. It is also our intention to develop the volume for organic fruit we process at the plant. In our Ghana plant 39% of the fruit we process is organic or Fairtrade.

FJF: With regards sustainability, do you plan to introduce the support initiatives of the local farmers with farm school programmes similar to those you run in the African plant?

SG: Yes we do. Although the position in Brazil is slightly different. In Ghana, we still run these programmes and there we have now educated some 2500 farmers who we have put through a six course module on everything from planting to pruning, weeding to spraying, and given them log books, and undertaken practical as well as theoretical work with them. We have a background in providing that level of educational support to our farmers. It is essential because otherwise the quality of the fruit that we get delivered is too poor. In Brazil they are slightly further ahead in sophistication but we have contracted an agronomist to work with the Cajuba plant because there may be different things that for certain markets we have to control to ensure that the organic chain remains intact, such as the level of pesticide for example. And for that you need an agronomist who can provide schooling for the farmers to help them understand that there is an additional value to them if they control their crop better.

FJF: Could you give some capacity information on the plant and also the varieties of juice you plan to produce?

SG: The plant has four lines in total, one running orange products, the remaining three focusing on tropical fruit. The plant is able to process approximately 100,000 tonnes of fruit a year. The main products are frozen concentrated orange juice and cold pressed oil, passion fruit juice, acerola Juice, mango Juice, cashew Juice as well as a variety of other locally consumed products. These juices can be produced as either cloudy or clarified, and we have the ability to run purees and puree concentrates as well. The plant itself is very versatile which is one of the reasons it’s so attractive.

FJF: In addition to the fruit processing facilities at the plant do you have packaging facilities on site?

SG: We pack into drums and bins. When we bought the plant there was a tetra pack line there – it was a pretty old line and we had no intention of using it. It’s not our model – we are simply bulk producers of bulk juices. We leave it to the experts to bottle and pack it.

FJF: In terms of location, is the plant in a good location to serve both the local and international markets. Is it near good road, rail and ports?

SG: A bit challenged with regards the railways! And it is not exactly close to the port but there is a reasonable road network. This is the sort of thing you learn when you start working in countries like Brazil. 400km for most people in Brazil is like a walk in the park, but it’s still a very long ride in a lorry pulling a container of juice, but it’s perfectly ok, perfectly manageable. The key is that the plant is right bang in the middle of the agricultural area. If you bear in mind that we are making concentrated juices and normally moving ten times more fruit than we are when producing juice it is more important to be close to the fruit!

FJF: Which destination markets are you targeting?

SG: Primarily we are targeting the European and US markets and the local markets where appropriate.

FJF: What do you see as the key consumer juice trends in the medium term? And how do you plan to address these?

SG: There is a continual trend towards cold pressed juice and puree, and the use of vegetable juices in blends will continue to grow as the focus on the negative issues around sugar intake continue. We see organic products continuing to grow in the medium term. To meet these demands its more about having the right Agro supply chain to support these demands, which we have available to us in both of our production locations.

FJF: Are the trends global or do they differ in the various markets you operate in?

SG: They are basically trends in the high value markets. Cold pressed juices are too expensive for more normal people to be able to buy so they are very much an American and European trend. You certainly don’t see that kind of demand in other parts of the world.

FJF: Is demand for organic and Fairtrade products on the increase from your customers? 

SG: The market leader is Europe, followed by the US with more and more interest in the US. People locally don’t really value it because they see the fruit which is growing on their doorstep so there is no premium for it in the local market.

FJF: Are you looking at any other acquisitions/mergers in 2017 and beyond? If so, in which markets?

SG: In the coming year we are going through a short period of consolidation, whilst we put all of our business units on to an integrated ERP (Enterprise Resource Planning) system. The ERP system understands what the demand is and does all of the maths relating to this. It’s basically an accounting system.

We are however still investing in our businesses, for instance in Ghana we are installing a cold pressed oil facility to extract further value from the process. We are also installing a Solar park at this plant to reduce costs and improve our CO2 footprint.

One of the attractions of the Brazilian acquisition was the wide range of premium products that we can now get involved in. Clarification of juices is another key thing for us going forward. Our ability to clarify high end products is a valuable piece of the jigsaw for us. Sono Global plans to be the go-to company for those who have a demand for clarified juice products.

By Caroline Calder Features Share: